Harvey Corp. purchases 10% bonds with face values of $200,000 on January 1, 2017. The bonds are dated January 1, 2017, and will mature on January 1, 2022. The bonds will pay interest on December 31 of each year. Harvey pays $215,970 for the bonds to yield 8% (market rate). Harvey accounts for the bonds at FV-OCI. Harvey’s fiscal year-end is December 31. Fair values of the bonds on December 31, 2017, and 2018 respectively are:
Harvey Corp. purchases 10% bonds with face values of $200,000 on January 1, 2017. The bonds are dated January 1, 2017, and will mature on January 1, 2022. The bonds will pay interest on December 31 of each year. Harvey pays $215,970 for the bonds to yield 8% (market rate). Harvey accounts for the bonds at FV-OCI. Harvey’s fiscal year-end is December 31. Fair values of the bonds on December 31, 2017, and 2018 respectively are:
2017 2018
Prepare a table to show interest income, interest received and premium or discount amortization for the bonds for each of the five years.
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$214,040 |
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$207,280
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Working notes :-
Purchase price of the bond Jan 1 2017 [a] $ 215970
Face Value Jan 1 2017 [b] $ 200000
Ptrmium on bonds paid [a-b] $ 15970
Period of the bonds 5 years
Premium tobe amortised each year 15970/5 = 3194
Interest on bond per year @ 10% 20000 --- 200000 x 10%
Interest net of premium amortisation 16806 --- 20000-3194
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